Fannie Mae reveals latest mortgage lender profitability outlook

Survey sheds light on how market changes impacted lenders’ sentiment

Fannie Mae reveals latest mortgage lender profitability outlook

Strong consumer demand gave mortgage lenders a more positive profitability outlook in the third quarter, according to Fannie Mae’s Mortgage Lender Sentiment Survey.

The survey showed that almost half (46%) of respondents expect profit margins to decrease in the next three months, an improvement from 69% in the previous quarter. Meanwhile, 38% believe profits will stay the same level, and 15% think profits will increase.

“On net, mortgage lenders’ profitability outlook improved slightly from last quarter, although more lenders than not continue to expect profit margins to decline in the months ahead,” Fannie Mae deputy chief economist Mark Palim said. “The primary-secondary spread, an indicator of potential profitability, remains wider than the previous decade’s average – a positive sign for lenders – though in August it was at its narrowest since February and 53 basis points below the peak seen in August 2020.”

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Palim noted that lenders’ expectations for purchase and refinance demand were mixed during the period.

“In the third quarter, more lenders than not reported expectations that purchase mortgage demand will continue to grow, though the total share expecting such growth fell substantially compared to the previous quarter,” he said. “Meanwhile, a plurality of mortgage lenders expects refinance activity to continue to wane from the highs of the past year and a half – even so, their outlook on likely refi volumes was improved compared to the prior quarter.”

The lenders who expect purchase demand to dwindle in the coming months cited high home prices and limited supply as the primary reasons for their bearish sentiment.

“Lenders continue to overwhelmingly cite increased competition as their primary concern regarding future profitability, the share citing personnel costs for their diminished profit margin outlook increased significantly, suggesting that mortgage lenders’ ability to efficiently manage their workforces will be critical to their bottom lines as competitive pressures remain intense,” Palim said.